Online Service received its telephone bill for January, but is not going to pay the bill until February. What adjustment is needed to record the transaction?
A) Debit Telephone Expense; credit Cash
B) Debit Accounts Payable; credit Telephone Expense
C) Debit Telephone Expense; credit Accounts Payable
D) Debit Accounts Payable; credit Cash

Question

Quizplus · Accepted Answer

The correct adjustment is to debit Telephone Expense to recognize the expense in January when it was incurred, and credit Accounts Payable to record the liability that will be paid in February. This follows the accrual basis of accounting, where expenses are recognized when they are incurred, not when they are paid.

Online Service Received Its Telephone Bill for January, but Is